RBI: Companies can issue fresh FCCBs to retire old debt

To facilitate the redemption of existing foreign currency convertible bonds (FCCBs), the Reserve Bank of India (RBI) on Monday allowed Indian companies to take fresh external loans and issue new FCCBs to address debt obligations.

RBI would consider applications to refinance FCCBs under the automatic route. Funds raised through fresh extra commercial borrowings (ECBs) and FCCBs cannot exceed the maturity redemption value of outstanding FCCBs, RBI said in communiqué to banks.

RBI, in its financial stability report, had cautioned that companies which raised funds through FCCBs would face problems, since holders may not opt for the conversion of bonds into equity due to the low market value of shares. FCCBs worth about Rs 31,500 crore, issued during the 2006-08 bull run, would be up for redemption by March 2013.

RBI has given Indian companies additional time till March 2012 to buy back FCCBs at reduced discount rates.

The restructuring of FCCBs, involving a change in the existing conversion price, is not permissible. However, companies can use the approval route to put up restructuring proposals which do not involve a change in the conversion price. RBI would consider such proposals on their merit.

Fresh issuances can be conducted at an all-in-cost basis according to the current norms for ECBs. Fresh ECBs/FCCBs cannot be raised six months before the maturing of outstanding FCCBs. Companies would have to approach RBI if the size of the fresh issue (of ECBs/FCCBs) is above $500 million to redeem the existing FCCB.

ECBs/FCCBs availed of to refinance FCCBs would be treated as part of the limit of $500 million, available under the automatic route. Banks must also monitor the end-use of funds, RBI said.

The central bank also said Indian companies can buy back the FCCBs at a minimum discount of eight per cent on the book value, using their foreign currency funds under the automatic route. Indian companies can also buy back FCCBs at a minimum discount of 10-20 per cent on the book value, using their internal accruals under the approval route, it said.